Terms related to the Paradox of Thrift


Marginal, in Economics, means EXTRA.  We talk about the Marginal Cost when we mean the extra cost involved in producing one extra unit.  We use Marginal Revenue to mean the extra revenue got from selling an extra unit.  We also have the concept of Marginal Utility (extra satisfaction) and Marginal Returns.


Propensity just means tendency, or inclination.  Because Economics is a social science which deals with the behaviour of people as they act in the management of their scarce resources, we cannot say that people will do something.  This is because people have freedom of choice, and are quite capable of acting in ways which others may judge not to be in their own best interests.  Therefore we say that people tend to do things rather than they will do them.  This tendency is what we call propensity. 


To consume, in the economic sense, means to use goods or services.  A consumer is a person who purchases goods or services for final use - the last person in the chain of distribution.  The consumer does not buy with the intention of re-selling the goods.


To save is to postpone spending.  In economics, only the amount of money saved in financial institutions is regarded as savings.  Money put into a piggy bank, or "under the mattress" is not regarded as savings for two reasons:
  1. The amount of money saved which is not put on deposit in a financial institution is minimal when compared with the total amount of money being saved
  2. The amount of money being put "under the mattress" on any given day is, statistically, probably being matched by money being taken out from "under the mattress" or by piggy banks being raided.


To import goods is to bring them from another country into our home country.  The higher the level of our imports, the more money we must send abroad in order to pay for them.


The multiplier is the amount by which any investment is multiplied by the time it has worked its way through the economy.  An initial investment of 1000 Euro may, by the time it has worked its way through the economy, be worth say 5,000 Euro.  If this is so, we say that the Multiplier is 5.

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